Activist threat pushes Japanese companies to unwind cross-shareholdings
Critics say it reduces transparency, muddies valuations and insulates management from shareholders’ voices
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[TOKYO] Pressure from activists, or the fear of being targeted by them, is pushing Japanese companies to accelerate governance reforms by unwinding the cross-shareholdings that have underpinned relationships for decades.
Major companies, including Toyota and Nintendo, have moved to unwind cross-shareholdings, Reuters reported, with the Super Mario maker later announcing a sale.
The practice of companies owning stakes in each other is unusual in the West but common in Japan, where it provides management with a buffer of stable and supportive investors.
Critics say that the practice reduces transparency, muddies valuations and insulates management from the voices of shareholders.
As regulators and the Tokyo bourse push firms to dissolve cross-shareholdings, companies seen as laggards risk being targeted by activists.
Jordan Cvetanovski, chief investment officer of Pella Funds, said that five years ago, Japanese companies would ignore activists.
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“Today, however, it feels as though companies have all read the same memo; they understand what they need to do, and they are doing it,” he added. “I have never seen such a rapid shift in mindset across an entire market.”
Demonstrating the rise of activists, Elliott Investment Management scored a landmark win in March, forcing Toyota to sweeten its bid for Toyota Industries amid criticism over transparency and fairness to minority shareholders.
It was reported that Toyota plans to engineer the sale of some US$19 billion of its shares by banks and insurers, in a demonstration of its seriousness about governance.
The large-scale move from such a prominent firm could prompt others to follow suit, analysts said.
Nicholas Benes, founder of the Board Director Training Institute of Japan and a proponent of Japan’s corporate governance drive, said: “Anybody who has had an activist in the house wants to look better.”
Investment bank Jefferies noted that the country had a record number of activist campaigns in 2025, while the unwinding of cross-shareholdings was gaining momentum.
Companies announcing the sale of their shares by other companies include electronics manufacturer Ibiden and frozen food firm Nichirei.
Kansai Electric Power, a target of Elliott Investment Management, is considering selling its shares of construction firm Kinden, said a source, declining to be identified as the information is not public.
Kansai Electric declined to comment.
CLSA Securities strategist Nicholas Smith, referring to former prime minister Shinzo Abe, said: “The activists are great, but they’re not the ones driving this; they’re in the sidecar; the fuse on the governance revolution was lit by Abe.”
The government of Prime Minister Sanae Takaichi, who is widely seen as an Abe acolyte, will put pressure on firms to put cash piles to work in hiking wages and investing in their businesses, he added.
Takaichi won a sweeping election victory in February.
Defensive measure
Nintendo in February announced the US$1.9 billion sale of its shares by banks including Kyoto Financial, as well as a stock buyback scheme.
Kyoto Financial has held shares in Nintendo since the 1960s.
Nintendo approached the bank about the sale, said Hideki Onishi, general manager at the bank’s corporate planning division.
It has a policy of cutting cross-shareholdings by more than 100 billion yen (S$808.2 million) by March 2029 and, with requests from the market, has somewhat accelerated the pace, he added.
He noted that the bank planned to present its future policy for reducing cross-shareholdings in its next midterm plan, which will start from April.
While cross-shareholdings have offered mutual support in business ties, they have also served as a defensive measure for management against takeover bids.
Yasuhiro Kikuchi, head of the shareholder and capital strategy advisory department at Mizuho Securities, said: “Using the stable shareholder structure as a shield, as seen five or six years ago or in the 2000s, and fighting to the bitter end is becoming harder.”
Meanwhile, companies will continue to be under pressure to improve near-term shareholder returns. The government also aims to ensure focus on medium to long-term growth strategies.
“With heartfelt respect, activists are the garbage collectors,” said CLSA’s Smith. “They eject bad managers and bad practices, doing the heavy lifting while the ministries are supporting and directing to get the job done.” REUTERS
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